Second of two parts
In the first part of this article, we covered Republic Act 112321 or the Revised Corporation Code of the Philippines (RCC), which redefined the corporate rules to promote ease and flexibility in doing business, as well as take full advantage of technological innovation.
We also discussed the first two key provisions in the RCC, which make it relevant for the changing global business landscape. These were: (1) the relaxation of the minimum number of incorporators, and the residency requirement for incorporators and directors; and (2) the introduction of the One-Person Corporation (OPC). We will now continue with the other provisions in the RCC which are considered by many as significant changes highly beneficial to the Philippine business community.
ALLOWING PERPETUAL EXISTENCE AND REVIVAL OF CORPORATIONS
Under the old rules, the maximum corporate term is 50 years, unless extended for a maximum of 50 years (or sooner dissolved). The RCC, however, now allows companies to exist in perpetuity, unless majority of the stockholders elect to retain its specific term pursuant to the Articles of Incorporation (AoI).
Corporations with expired terms may also be revived under the RCC. The revival applies to their corporate existence, all their rights and privileges under the certificate of incorporation, and their existing duties and liabilities prior to the revival.
Certain types of companies, such as banks, pre-need and insurance, pawnshops and other financial intermediaries need favorable recommendation from the appropriate government agency for the revival.
While the RCC does not provide any exception to the revival of a corporation whose corporate life has expired, it appears that the SEC proposes to exclude the benefit of revival to corporations whose registration were revoked for reasons or causes other than the non-filing of reports.
Based on the draft rules on revival of corporations that the SEC has circulated, the regulatory body clarified that the revival applies only to corporations with expired terms, not to those whose registrations have been revoked due to fraud or continuous inoperation.
We hope that the final regulations will specifically address issues on corporate revival to erase any doubt on the ability of corporations whose registrations have been revoked to avail of the benefit of revival under the RCC.
INTRODUCING MEANS FOR DISPUTE RESOLUTION AND EMERGENCY ACTION
Intra-corporate disputes are inevitable but the RCC provides stop-gap measures to minimize, if not totally prevent, long-drawn intra-corporate disputes in court. Companies now have the option to include an arbitration clause in the AoI. Arbitration is an option to resolve issues between the corporation and its stockholders arising from the implementation of AoI or By-Laws or from intra-corporate relations.
With this new provision, all controversies can be referred to arbitration. However, the SEC still needs to formulate the governing rules, including the organization of an arbitral board.
The board of directors has also been given the prerogative to constitute an emergency board to undertake any emergency action sought to prevent grave damage to the corporation.
Vacancy in the board may be filled temporarily when the vacancy prevents the remaining directors from constituting a quorum and the remaining directors voted unanimously. The action of the temporary director shall be limited to the emergency action necessary and his or her term shall cease within a reasonable time from the termination of the emergency or upon the election of the replacement director. The SEC is expected to clarify in a separate issuance what may constitute grave, substantial, and irreparable loss or damage to the corporation that will necessitate the appointment of an emergency board.
TAKING ADVANTAGE OF TECHNOLOGY
From filings to notices to attendance in board meetings and voting, the law takes full cognizance of advances in technology.
AoIs and their amendments may now be filed electronically, fortifying the already established Company Registration System of the SEC.
The RCC allows written notices to be sent to regular stockholders through e-mail or such other means that the SEC will allow under its guidelines. A corporation may also specify in its By-Laws the manner of communication through notices of meetings are sent, including the extension or shortening of corporate term, increase or decrease of capital stock, and sale or other disposition of assets. Notably, shareholders may vote through any forms of remote communication such as videoconferencing or teleconferencing using available systems and computer applications or even in absentia. Voting in absentia may be done using any electronic voting platform that may be established.
Similarly, directors can remotely participate in meetings, provided they are given reasonable opportunities to participate.
In corporations vested with public interest, stockholders entitled to elect directors may do so either in absentia or remotely, even without specific provisions in the By-Laws authorizing such voting.
THE FUTURE OF THE BUSINESS LANDSCAPE
Aside from the ease of doing business, the RCC seeks to address various reform clusters, such as prioritizing corporate and stockholder protection, instilling corporate and civic responsibility, and strengthening the country’s policy and regulatory corporate framework.
As the law is new and regulations have yet to be fully formulated, the role of the SEC will be crucial in its proper implementation. The SEC has already informed registered companies that it will come up with piecemeal rules implementing the provisions of the RCC in lieu of consolidated guidelines.
The passage of the law brings much optimism and rightfully so. However, only time can tell how the RCC will be able to transform the business landscape in the short term and the whole economy in the years to come.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.
Cecille S. Visto is a Tax Senior Director of SGV & Co.